Why This Matters for Your Home Purchase
You found a house with solar panels or energy-efficient upgrades, and now you're wondering if they'll help or hurt your mortgage application. The answer depends entirely on who owns the equipment and how it's financed.
Fannie Mae treats these properties differently based on ownership structure. If you own the solar panels outright, they can boost your home's value. If you're leasing them or buying power through a PPA, the rules get more complex.
The key distinction is between improvements that belong to the property versus equipment that belongs to someone else. A new HVAC system or energy-efficient windows become part of your home. Solar panels might or might not, depending on the financing arrangement.
How Energy-Efficient Improvements Get Valued
When your home has energy-efficient features like high-performance windows, upgraded insulation, or efficient HVAC systems, the appraiser must identify these improvements and determine their impact on market value.
The appraiser looks at what buyers in your area actually pay for these features. If energy-efficient homes sell for $10,000 more than comparable standard homes, that premium gets reflected in your appraisal.
Appraisers can use several methods to value these improvements. They might analyze recent sales of similar energy-efficient homes, calculate the income benefits from lower utility bills, or assess the cost of the improvements versus their market acceptance.
Say you're buying a home with a new geothermal system that cost $25,000 to install. The appraiser won't automatically add $25,000 to the home's value. Instead, they'll research what buyers actually pay for homes with geothermal systems compared to homes with standard heating and cooling.
The Five Types of Solar Panel Ownership
Fannie Mae breaks solar panels into five categories based on ownership and financing. Each category has different rules for appraisal, debt-to-income calculations, and title requirements.
Owned free and clear: You own the panels with no debt. These panels add value to your home's appraisal, and there are no monthly payments to include in your debt-to-income ratio.
Financed as part of the real estate: You bought the panels with a loan secured by your property. The panels add to your home's value, and the loan payments count toward your debt-to-income ratio.
Financed as personal property: You own the panels but financed them separately from your mortgage. Whether they add value depends on the lender's ability to repossess them. The loan payments count in your debt-to-income calculations.
Leased panels: You make monthly lease payments but don't own the equipment. The panels don't add to your home's value, but the lease payments might be excluded from debt-to-income calculations under certain conditions.
Power purchase agreement (PPA): You buy the electricity the panels produce but don't own or lease the equipment. The panels don't add value to your home, and payments may be excluded from debt-to-income if they're based solely on energy production.
Title and Lien Complications
Solar financing creates potential title issues that can derail your mortgage. The solar company may file a UCC-1 financing statement to protect their interest in the equipment.
If the UCC-1 filing claims an interest only in the solar panels, your mortgage lender typically doesn't require subordination. The solar company's lien stays separate from the real estate.
Problems arise when the UCC-1 filing claims an interest in both the panels and the real estate. This creates a lien on your property that must be subordinated to your mortgage or released entirely before closing.
Your title company will identify these issues during the title search. If subordination is required, the solar company must agree in writing that your mortgage takes priority over their interest in the property.
Debt-to-Income Exclusions for Solar Payments
Solar lease payments and PPA payments can sometimes be excluded from your debt-to-income ratio, which helps you qualify for a larger mortgage.
For lease payments to be excluded, the lease must guarantee delivery of a specific amount of energy for the agreed payment. The lease must also include a production guarantee that compensates you when the panels produce less energy than promised.
PPA payments can be excluded if they're calculated based only on the energy the panels actually generate. If you pay a fixed monthly amount regardless of production, those payments count toward your debt-to-income ratio.
A typical qualifying solar lease might guarantee 1,200 kilowatt-hours per month for $150. If the panels only produce 1,000 kilowatt-hours, the company reduces your payment proportionally or credits your account.
Required Documentation
Your lender needs copies of all solar-related agreements. For leased panels or PPAs, provide the complete lease agreement or power purchase contract.
For financed panels, provide the loan agreement and security documents. The lender needs to understand whether the solar debt is secured by the panels alone or by your property.
If you own the panels free and clear, bring documentation showing the purchase and any warranties. This helps the appraiser understand the system's age, capacity, and expected lifespan.
Your homeowner's insurance policy must be structured correctly. For leased panels or PPAs, the solar company cannot be named as a loss payee on your insurance. They must carry their own coverage for equipment they own.
Common Problems That Delay Closing
The biggest issue is discovering that a UCC-1 filing creates a lien on your property that the solar company won't subordinate. This can kill your loan unless the lien gets released.
Appraisal problems occur when the appraiser incorrectly includes leased panels in the home's value or fails to properly value owned panels. The appraisal must match the ownership structure exactly.
Documentation gaps cause delays when lease agreements or PPAs are missing key provisions. If a solar lease doesn't include production guarantees, the payments cannot be excluded from debt-to-income calculations.
Title insurance companies sometimes struggle with solar-related exceptions. Make sure your title company understands Fannie Mae's requirements for acceptable exceptions under [[Section 4702.4]].
Insurance and Foreclosure Considerations
Solar agreements must address what happens if your mortgage goes into foreclosure. For leased panels or PPAs, your lender needs the right to either terminate the agreement, assume it without transfer fees, or negotiate a new agreement on similar terms.
The solar company must agree to repair any damage caused by installing, maintaining, or removing their equipment. This protects your lender's collateral interest in the property.
Damage liability becomes especially important with roof-mounted systems. If removing leased panels damages your roof, the solar company must restore it to original condition at their expense.
References
For the official guidelines, see 5601.4: Eligibility of properties with energy-efficient improvements and properties with solar panels in the Fannie Mae Selling Guide.
Mortgage guidelines change. Stay current.
Fannie Mae and Freddie Mac update their rules several times a year. Get notified when changes affect your mortgage eligibility, required documents, or loan terms.
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Original Freddie Mac Guideline Text
Bulletin 2025-7
, which announced the policy requirements for Uniform Appraisal Dataset (UAD) 3.6. Sellers may submit to the Uniform Collateral Data Portal
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appraisal reports that use UAD 3.6 before the mandatory effective November 2, 2026 version of this section.
Freddie Mac purchases Mortgages secured by properties with energy-efficient improvements and properties with solar panels as specified below. This section contains requirements related to:
Properties with energy-efficient improvements
(a)
Properties with energy-efficient improvements
The appraisal report must:
Identify energy-efficient features (e.g., photovoltaic systems, water efficient improvements, energy-efficient windows) or high-performing energy-efficient homes and any impact to market value
Assess the contributory value of energy improvements and any premium paid for a high-performing energy-efficient home based on the market reaction, similar to any other property feature
Consider appropriate valuation methods (e.g., income approach, cost analysis, discounted cash flows, or market surveys or any other applicable methods) when determining contributory value
Justify and support any adjustments in the appraisal report in an addendum or in supplementary documentation, if necessary
Appraisers must be familiar with energy reports, energy ratings or other new concepts that may be developed to identify the energy efficiency of a home. If relied upon, any reports must be generally acceptable, and, if available, these reports and information must be included in the appraisers’ analysis.
Additional due diligence may be necessary if the high-performing energy-efficient home or energy improvements are new to the market and there are a lack of sales with similar features or a lack of data available from traditional data sources.
Note: The Appraisal Institute’s Form 820.05, Residential Green and Energy Efficient Addendum, may be used to collect and report energy efficiency data associated with a property.
Resources
Seller resources related to energy-efficient properties and the appraisal of properties with energy-efficient features:
The Appraisal Institute (including the use of the Residential Green and Energy Efficient Addendum)
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) Index
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provided by the Residential Energy Services Network (RESNET
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provided by the U.S. Department of Energy’s Better Buildings
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initiative
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– Tool used in the valuation of photovoltaic systems and/or the energy related efficiency of a property (income and cost approaches)
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– Tool used in the valuation of photovoltaic systems (income approach)
(b)
Properties with solar panels
The Seller must take into consideration ownership of the solar panels and any liens upon the property relating to debt or lease payments used to obtain the solar panels. For example, solar panels not owned by the Borrower can be financed via several types of agreements such as lease agreements or a power purchase agreement (PPA).
The Seller must also review any UCC-1 Financing Statement or lease agreement associated with the solar panels to determine if liens are against the real estate or against the solar panels. The property must maintain access to electrical utilities consistent with community standards.
If solar panels are present on the Mortgaged Premises, the Seller must follow the requirements outlined in the table below:
Solar panel lease
Solar panels financed as personal property
Solar panel financed as a fixture to real estate
Description
The Borrower purchases power produced by the solar panels but does not own the solar panels.
The Borrower pays monthly lease payments to access the solar panels but does not own them.
The Borrower owns the solar panels, having purchased them with a note/security agreement and is entitled to power produced by the panels.
Borrower owns the solar panels and has no related debt.
Title
UCC-1 Financing Statement or lease agreement associated with the solar panels recorded in the applicable land records and claiming an interest in the solar panels but not the real estate; the Seller is not required to obtain a subordination agreement of the UCC-1 Financing Statement.
UCC-1 Financing Statement recorded against title to the Mortgaged Premises, creating a lien on the real estate itself (i.e., claiming an interest in both the solar panels and the real estate, not just the solar panels); the Seller must either subordinate or release this lien.
There must be no UCC-1 Financing Statement or notice recorded against the Mortgage Premises.
In the event there is a UCC-1 Financing Statement, it must be released.
Appraisal
The solar panels must not be included in the appraised value of the property.
The appraiser must comment on the marketability of the home with solar panels present and identify the panels and system features.
The solar panels must not be included in the appraised value of the property if the lender may repossess them for default on the financing terms.
Seller must ensure the appraiser has recognized the existence of the solar panels and considered the solar panels in the appraiser’s opinion of the market value of the property.
Debt payment-to-income (DTI) ratio
Lease payments for solar panels may be excluded from the monthly DTI ratio if the lease:
Provides for delivery of a specific amount of energy for an agreed upon payment during a given period, and
Includes a production guarantee under which the Borrower is compensated on a prorated basis when the solar panel energy production falls below the level required by the lease agreement
Payments for solar panels subject to a PPA or similar type of agreement may be excluded from the monthly DTI ratio if the payment is calculated based only on the generated energy.
Payment to solar company or lender is included in the DTI ratio.
Payment to solar company or lender is included in the DTI ratio.
N/A
Obtain a copy of the lease, PPA or note/security agreement
Damage that occurs as a result of installation, malfunction or the removal of the solar panels is the responsibility of the owner of the equipment. The owner must be obligated to repair the damage and return the improvements to their original or prior condition.
In the event of foreclosure, the Seller/Servicer may:
Terminate the lease agreement or PPA and require the owner of the equipment to remove the panels and supporting equipment
Become the beneficiary of the Borrower’s lease agreement or PPA without incurring a transfer fee; or
Enter into a new lease agreement or PPA with the owner of the equipment under terms no less favorable than the existing agreement
The Mortgage file must contain a copy of the lease agreement, PPA or similar type of agreement, as applicable
Homeowner’s insurance
The owner of the solar panels agrees to not be a loss payee (or named insured) on the homeowner’s insurance policy covering the property.
N/A
Any title insurance policy exceptions due to the existence of the lease agreement, PPA or similar type of agreement must comply with the acceptable exceptions found in
Section 4702.4
.
